The VAT domestic reverse charge for building and construction services is now scheduled to come into effect from 1 March 2021. There’s not long to go, so here are the key action points to get your business ready:
1. Establish when the reverse charge is likely to apply to supplies to and from other VAT-registered contractors and sub-contractors you deal with. Before you can apply the reverse charge you need to be satisfied that your customer is VAT-registered and your contract is within the CIS
2. Check that your accounting systems will calculate and report reverse charge supplies. Invoices will need to specify that the reverse charge applies
3. Establish procedures for additional information you will need from some of your customers
4. Consider the training staff will require to deal with the new rules
5. Estimate the cashflow consequences on your business if you no longer hold output tax. It may be that changing to a monthly VAT return cycle to accelerate payments due from HMRC would be of benefit.
6. If you are a supplier using the Cash Accounting Scheme or the Flat Rate Scheme, neither of these schemes can be used for the supply of services that are subject to the reverse charge. This may mean that it is no longer beneficial to use these schemes.
Where to get detailed information and HMRC guidance
HMRC has now issued revised guidance. This link sets out what you need to do and has links to further guidance: bit.ly/2WHQ5R2. There is also a technical guide: bit.ly/2F7tuKU. The technical guide has a list of contents covering specific areas which may be relevant to your particular circumstances. At the end of the technical guidance there are two useful flowcharts which summarise the steps that need to be taken to determine whether a supply is subject to the reverse charge.
HMRC will apply a ‘light touch’ on genuine errors for six months from March 2021, where businesses are aiming to comply and act in good faith.
If you would like some help, just ask!
The change means that the construction sector is likely to be subject to considerable HMRC scrutiny in the foreseeable future. The reverse charge may highlight that some construction services may not have been correctly classified in the past. For these reasons, we would recommend taking stock of VAT and CIS compliance across the board.
If you would like some help, please call Andrew Price on 01803 296678.
You may also be interested in a more detailed blog about the VAT Reverse Charge for the Construction Industry, ‘Will you be ready for 1 March 2021? Will your cashflow be hit? VAT reverse charge for construction services’